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Optimal plaintiff incentives when courts are imperfect

  • Philip Bond
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    The incentives of a plaintiff in a lawsuit are affected by a variety of legal rules. One leading example is the proportion of the fine imposed on the defendant that is awarded to the plaintiff. Another is the identity of the plaintiff himself: private litigants are motivated by the prospect of receiving damages, while government employed plaintiffs (such as public prosecutors and employees of regulatory agencies) are instead rewarded (if at all) by career advancement. The paper examines the interaction between court characteristics and plaintiff incentives on the deterrence provided by contracts/laws/regulations. It shows that a key determinant of the optimal level of plaintiff incentives is the extent to which a party arguing ``against the facts'' is able to influence the court. When such influence is possible, it is generally optimal to restrict plaintiff incentives. Implications for the use of split-award statutes, loser-pays rules, class action lawsuits, and public enforcement are discussed. In more general terms, the paper makes precise an avenue via which legal rules affect the efficacy of a legal system

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    Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 723.

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    Date of creation: 2004
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    Handle: RePEc:red:sed004:723
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    1. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
    2. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Bank supervision and corporate finance," Policy Research Working Paper Series 3042, The World Bank.
    4. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 84-95, April.
    5. A. Mitchell Polinsky & Yeon-Koo Che, 1991. "Decoupling Liability: Optimal Incentives for Care and Litigation," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 562-570, Winter.
    6. Edward L. Glaeser & Andrei Shleifer, 2001. "The Rise of the Regulatory State," Harvard Institute of Economic Research Working Papers 1934, Harvard - Institute of Economic Research.
    7. Albert Choi & Chris Sanchirico, . "Should Plaintiffs Win What Defendants Lose?: Litigation Stakes, Litigation Effort, and the Benefits of 'Decoupling'," Scholarship at Penn Law upenn_wps-1000, University of Pennsylvania Law School.
    8. Patrick Legros & Andrew Newman, 2002. "Courts, contracts and interference," ULB Institutional Repository 2013/7034, ULB -- Universite Libre de Bruxelles.
    9. Spurr, Stephen J., 1991. "An economic analysis of collateral estoppel," International Review of Law and Economics, Elsevier, vol. 11(1), pages 47-61, May.
    10. Snyder, Edward A & Hughes, James W, 1990. "The English Rule for Allocating Legal Costs: Evidence Confronts Theory," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 345-80, Fall.
    11. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, vol. 8(2), pages 127-143, December.
    12. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-87, April.
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